The standards must be achievable, high or very high standards which cannot be achieved are of no use. Standards must be set up keeping in mind the resources of the organisation and as far as possible standards must be set up in numerical or measurable terms.

For example,

i. Standard sale — Rs 20 lakh per annum

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ii. Standard profit —Rs 4 lakh

iii. Reduction in cost by 5%.

Sometimes it is not possible to express the standards in numerical terms. For example, setting up of quality standards or standards for managerial work, etc. The standards must specify the time limit within which they have to be achieved and as far as possible the standards must be set up for short term. If long term standards are set up they must be divided into short term.

For example, standard sale p.a. is 12, 00,000, then per month 1, 00,000 target can be taken for comparison. With short term targets or standards the errors can be detected early and timely actions can be taken. The standards must be revised from time to time keeping in mind the changes of business environments.

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Some examples of standard used in functional areas:

(1) Production function:

(a) Target production of 10,000 units per month.

(b) Standard cost per unit is Rs 10/-.

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(c) Reduction in wastage of resources by 5%.

(d) Reduction in defective production from 10% to 5% by the end of one year.

(2) Marketing function

(a) Target sale 1, 00,000 units per month.

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(b) Increase in market share by 10% in one quarter.

(c) Increase in advertisement cost by 10%.

(d) Increase in expenditure of after sale service by 10%.

2. Measuring of performance:

After setting up of standards the performance of the employees is measured by evaluating the actual work done by the employees. When the performance can be measured numerically then it is very convenient to measure the performance. While measuring the performance the quantitative as well as qualitative aspect of performance is kept in mind.

Sometimes employees achieve the quantitative standards by ignoring qualitative standards. That is why while measuring the performance quality standards are also measured. Certain quality parameters are fixed to measure the quality standard when number of rejections or sales return increases. It indicates low standard of quality.

Generally the performance of managers is measured by looking at the overall efficiency level of the organisation. The performance of research and development department is measured by change in technology and updating of production department.

The performance of financial department is measured by checking the solvency and liquidity ratios etc. The performance must be measured periodically in short period of time.

3. Compare performance against standard:

After measuring the performance the manager compares the actual performance with the planned performance and standard. If there is match in both then the controlling function ends there only. But if there is mismatch or deviation then the manager tries to find out the extent of deviation. If the deviation is minor then it should be ignored. But if the deviation is more, then timely actions must be taken.

4. Analysing Deviations:

All deviations need not be brought to the notice of top management. A range of deviations should be established and only cases beyond this range should be brought to the knowledge of top level management. They must divide the deviations in two categories deviations which need to be attended urgently in one category and minor or insignificant decisions in other category. These two categories must be controlled by following ways:

(i) Critical point control:

It means keeping focus on some key areas (KRAs) and if there is any deviation in these key areas, and then it must be attended urgently. Key areas are those which have impact on whole organisation. For example, if there is increase in production cost by Rs 5, per unit and there is increase in postal cost by Rs 20, then more focus should be to find out reasons for increase in cost of production as it will affect the profit and future revenue of organisation whereas postal cost is incurred rarely and managers have no control over postal cost.

(ii) Management by exception:

It means a manager who tries to control everything may end up controlling nothing. The deviations which are beyond the specific range should only be handled by managers and minute or minor deviations can be ignored.

Manager should not waste his time and energy in finding solutions for minor deviations rather he should concentrate on removing deviations of high degree.

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For example, if production cost increases by Rs 2, it can be ignored but if it increases more than Rs 2, then managers must try to find out the reasons for such increase after identifying the reasons for deviations which need immediate attention.

These deviations and reasons must be brought to the knowledge of top level management for critical evaluation whereas the increase less than Rs 2, can be handled at supervisory level or can be ignored also for some time.

The causes for deviations can be many: for example, fault in machinery, inefficient staff, shortage of resources, over or understating of standards. It is very essential to find out the exact and accurate cause of deviation.

Advantages/Merits of Management by Exception (MBE)

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(i) It saves time and efforts of managers

(ii) It focuses attention of managers on significant matters.

(iii)No wastage of time and energy of managers to solve routine problems. These are solved by subordinates.

(iv) It differentiates between Critical and Simple problems.

5. Taking corrective measures:

On comparing the actual performance with the planned performance, the manager will come to know about the deviations between the plan and actual performance. Then the next step is to know the reasons for such deviations and trying to remove deviations in future. The manager takes measures to bring back everything on the track, i.e., according to plan.

Taking corrective measures may involve:

(a) Let the situation remain same if the deviations are minor.

(b) Redesign or re-frame the plans or strategies if these are overstated or not matching with the present day business environment.

(c) Taking corrective measures to improve the performance so that in future it matches with the plan.

Generally the managers take measures to improve the performance such as sending the employees for training if the deviation is due to inefficient performance, getting the machine repaired if delay in performance is due to fault in the machinery, making the supervisors more responsive. If delay is due to carelessness and laziness of the employee, sometimes the managers have to set the standards and targets again if standards are not realistic and achievable.

This revision of standards is called downward revision because standards are reduced to make them realistic and achievable. Sometimes the performance is higher than the set standards; in that case upward revision of the plan is done and plans are set at high rate so that they match with the actual performance.

The manager must take the corrective measure only by finding the root cause of the deviation and try to remove that cause.

Feedback in Controlling:

The controlling function does not end by taking corrective action as it is a continuous process. After suggesting the corrective measure a feedback report is prepared. Feedback refers to list of reasons for deviations of plans or for inefficiency in overall working of organisation; along with reasons the corrective measures are also specified in the feedback report and feedback acts as a base to establish the standard for next year and controlling process again starts from 1st step.

“Deviation” in Controlling:

Deviation refers to difference between actual performance and standard performance.